Sustainability

From linguistics to sustainable finance – interviewing KPMG senior analyst Nicolas Dolce

I have recently been contacting alumni from the Creative Sustainability program to hear what my fellow students are nowadays up to. The Creative Sustainability master’s degree program is an interdisciplinary program that teaches students how to solve complex sustainability problems by using creative teamwork, design, and systems thinking. Last time I interviewed Karoliina Hovi (blog post in Finnish only) who is running her own sustainability consulting company, Hovi Creative. In this blog post, I tell the story of how a linguistics student from New Jersey ended up working in the field of sustainable finance, in Helsinki, Finland.

Nicolas Dolce grew up around different languages and cultures. Like many Americans, Nicolas’s roots are in the old world: his mother is a Swedish-speaking Finn from Turku and his father is an Italian American. Many of Nicolas’s friends also had international backgrounds, some with immigrant ancestors and others who had migrated more recently and still had fresh family ties overseas.

“In high school, I had friends from all over the world who would visit their families whenever they had the chance. One friend had parents who were Danish, and during the summer he would go to Denmark and I would go to Finland to visit family. I also had friends from South Korea, India, and Poland who would visit their families every now and then. Some people might still say that they’re Italian even though their family came from Naples in the 1880s.”

This cultural diversity and being exposed to different languages had a big impact on Nicolas’ life, sometimes in very concrete ways. Nicolas learned Swedish thanks to her mother, which contributed to his interest in linguistics, especially after an aha moment during an English class in high school:

“We were reading the epic poem, Beowulf, which is similar to the Finnish Kalevala. We read a version with modern and old English text side by side, and I realized that some of the old words seemed similar to Swedish. That got me interested in historical linguistics. I don’t think that would have happened if I didn’t know some Swedish.”

However, Nicolas had broad interests and linguistics was not the only thing that felt compelling. After high school, he enrolled at The College of New Jersey, where he majored in International Studies. International Studies allowed him to study a broad range of topics, including history, political science, economics, and of course, linguistics. This combination of interests led to fascinating experiences and study projects, one of which involved meeting the Mapuche indigenous people in Chile.

“I studied in Chile in 2013, where we had a meeting with the representatives of the indigenous Mapuche people. Being a linguistics student, I was very interested in their language, the Mapudungun. The language is a mystery because it’s not related to any other indigenous language in the area and no one knows where it came from. The representatives also told us that nobody knows about the Mapuche and he asked us to go and tell other people about them. That left a deep impression and made me interested in learning more about indigenous peoples.”

Meeting the Mapuche later culminated in a senior thesis where Nicolas analyzed why certain indigenous people seem more respected than others.

After graduating from The College of New Jersey, Nicolas had a wide range of options open to him. Although he was primarily interested in linguistics, pursuing an academic career didn’t seem like the most attractive option. The field is very competitive, and the job prospects for professional linguists seemed uncertain. Nicolas also wanted to do something more practical and applied, and he spent a gap year in Finland considering his alternatives. In Finland, he heard about Aalto University’s Creative Sustainability master’s degree program, which brings together students from different fields to learn how to solve sustainability problems through interdisciplinary teamwork. Sustainability and environmental protection were other long-time interests of Nicolas, and the program seemed like a good fit.

“I’ve been interested in the environment ever since I was young. For example, I remember raising money with my brother and sister to donate to an elephant conservation foundation after reading about it in National Geographic. With sustainable business, I also like the idea that you can make a difference, get into organizations, and have an impact on a pretty direct level. I found the Creative Sustainability program to be a really good fit because even though I didn’t have a traditional business background, I could apply to the business track because of the program’s interdisciplinary nature.”

Nicolas was accepted to the program and his studies began in 2016. There was a lot to learn: the program combines courses in sustainability, business, design, and real estate, but also involves studies in systems thinking, service design, and creative teamwork. However, the new ideas connected well with Nicolas’s already interdisciplinary background and he enjoyed the challenge. Nicolas further expanded his horizons by studying Analytics and Data Science as his minor, a decision that would later prove invaluable. Today, Nicolas looks fondly back at his time at Aalto.   

“I thought Aalto University was an amazing place and I have great memories from studying there. I think I got the most out of Aalto by being in the Creative Sustainability program, which mixes different schools and fields. My favorite part was the Capstone course. I had never done anything like that, working with a team for a client to solve a real business problem. Always keeping an eye on what the client wants, what is the brief, and working your way to a solution that is possible but that also makes the client happy.”

Interdisciplinary teamwork, systems thinking, and design are crucial to progressing sustainability, but they also helped Nicolas and his three classmates win a social hackathon arranged by Deloitte Finland and a Finnish bank, Osuuspankki, in 2017. The winning prize was a summer job that would allow the team to pilot their idea at both companies.

“We pitched an idea that combined lots of different elements, which we had learned to do in Creative Sustainability. The brief was to solve a social issue in Finland, and we chose isolation among the elderly as our problem. We pitched a service that combined wearable devices, gamification, and social interaction with family members to help activate the elderly. As the winners, two of us ended up working at Deloitte, and the other two at Osuuspankki.”

Nicolas ended up at Deloitte, where he later continued working as a trainee in the Sustainability Services team. From the very beginning, Nicolas got to participate in various sales projects and do billable work related to sustainability, the circular economy, and sustainability reporting. The work was challenging but rewarding.

“The assignments could be challenging and sometimes you were thrown into the deep end. For example, I got an opportunity to create a sales offering for science-based sustainability targets for a prospective client. I didn’t know that much about the topic at the time, so I had to learn everything from scratch, create completely new materials, and research the clients’ needs. The learning curve can be steep, which also means that you get to learn a lot very fast. “

In January 2021, Nicolas left Deloitte to join KPMG Finland as a senior analyst in the Responsible Investment and Sustainability Services team. At KPMG, Nicolas feels like he has truly landed on his niche, where he can combine his understanding of sustainability, data science, and economics to help KPMG’s customers become more sustainable. Reflecting on his journey, Nicolas uses the Japanese word Ikigai to describe his current work, which refers to having a purpose in life.

“Starting from international studies and linguistics, I’ve been narrowing down on what my Ikigai is… and I think that something related to sustainability impact calculation, data science, and sustainable finance regulation seems to be my specialty.”

Nicolas’s story serves as a reminder of the importance of following one’s interest while maintaining a flexible, growth mindset. Although Nicolas was originally interested in linguistics when he embarked on his journey, he also found pleasure in learning about business, politics, economics, sustainability, and even data science and finance. Had he followed the advice to “follow your passion”, he might have never learned about his other passions. 

Resources

How to develop a growth mindset:

Cal Newport articulates well why it’s not always a good idea to follow one’s passion:

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Sustainability

Minkälaista on vastuullisuusyrittäjän arki? Haastattelussa Karoliina Hovi

Eristäytymisen ja etätyöskentelyn ohella on välillä mukavaa astua oman kuplan ulkopuolelle ja kuulla mitä muut kestävän kehityksen tyypit tekevät. Päätinkin olla yhteydessä vanhaan opiskelutoveriini Karoliina Hoviin ja kuulla mitä hänen arkeensa kuuluu. Opiskelimme samaan aikaan Aalto-yliopiston Creative Sustainability -ohjelman kursseja, ja Karoliina työskentelee nykyään vastuullisuusyrittäjänä ja Hovi Creativen toimitusjohtajana. Tässä blogissa kerron miltä vastuullisuusyrittäjän arki näyttää ja minkälaisten kysymysten parissa Karoliina työskentelee päivittäin.

Karoliina pystyy astumaan monenlaisiin saappaisiin. Hänellä on vuosien kokemus eri muoti- ja tekstiilialan työtehtävistä sekä taiteen maisteritutkinto Aalto-yliopiston IDBM (International Design Business Management) -ohjelmasta. Pääaineensa ohella Karoliina opiskeli sivuaineina Creative Sustainability -opintoja sekä tulevaisuudentutkimusta. Monipuolisen työkokemuksensa ja koulutuksensa ansiosta Karoliina pystyy tarpeen mukaan toimimaan muotoilijana, trendiennustajana, markkinoijana, viestinnän suunnittelijana tai kestävän kehityksen strategina. Yrittäjänä hän pääsee yhdistelemään näitä osaamisalueita ja hyödyntämään joustavasti erilaisia muotoilun, liiketoiminnan ja strategisen suunnittelun työkaluja yritysten vastuullisuusstrategioiden ja -viestinnän kehittämisessä. Tehtäväkenttä on laaja, eikä yksikään päivä ole samanlainen.

”Tänään oli kaksi työpajaa kahdelle eri asiakkaalle, joista yksi oli elintarvikealan yritys ja toinen toimii IT-alalla. Työpajojen tekoon kuuluu olennaisesti myös loppuraportti, jossa kiteytetään ydinasiat sekä johtopäätökset.  Samaan aikaan työn alla on erään tunnetun kuluttajatarvikebrändin vastuullisuusraportin viimeistely, ja koska olen muotoilija taustaltani, pystyn myös taittamaan raportin itse. Lisäksi kehitän asiakkaalle vastuullisuusviestinnän sparrauksia, johon kuuluu erityisesti prosessien ja työkalujen suunnittelua. Sehän on yrittäjänä hyvä puoli, että päivät ovat tosi vaihtelevia.”

Eri asiakkaat miettivät myös hyvin erilaisia kysymyksiä. Osalla on jo todella vahva lähtötilanne, jolloin Karoliinan tehtävänä on auttaa hiomaan suunnitelman yksityiskohtia tai kiteyttää vastuullisuuden kokonaisuutta, kun taas osa asiakkaista on vielä vastuullisuusmatkan alkutaipaleella. Tärkeä osa Karoliinan työtä onkin auttaa asiakkaita luomaan selkeä kokonaiskuva siitä, mitä on jo tehty, missä ollaan nyt ja minne halutaan mennä jatkossa.

“Olennaista on myös auttaa asiakasta hoksaamaan ne vastuullisuuden osa-alueet, joissa on jo tehty paljon työtä ja menty pitkälle. Palveluideni lopputuotoksena on useimmiten tiekartta, johon kuuluu vuositavoitteet seuraaville viidelle vuodelle. Lisäksi suunnitelma pyritään jalkauttamaan niin, että kuhunkin tavoitteeseen määritellään mittarit, joilla seurataan niiden edistymistä, sekä vastuuhenkilö. Pyrkimyksenä on luoda selkeitä kokonaisuuksia ja lisätä tiimin vastuullisuusosaamisen tasoa, jonka perusteella asiakkaat voivat itse jatkaa vastuullisuuden kehittämistä.  Asiakkaat ovat kyllä olleet tähän tyytyväisiä.”

Karoliinalle vastuullisuudessa olennaista on katsoa pidemmälle tulevaisuuteen ja luoda visio siitä, mitä vastuullinen liiketoiminta tarkoittaa kullekin asiakkaalle. Strategisen suunnittelun lisäksi Karoliina pystyy hyödyntämään myös tulevaisuudentutkimuksen menetelmiä, joista tunnetuin lienee Nokian Risto Siilasmaankin käyttämä skenaariotyökalu. Karoliina toivoisikin pääsevänsä käyttämään enemmän näitä menetelmiä työssään.

”Käytän itse fasilitoinnissa erilaisia palvelumuotoilun menetelmiä ja haluaisin vielä enemmän tehdä erilaisia tulevaisuusskenaarioita, mutta asiakkaat kaipaavat edelleen aika paljon konkretiaa. Aikaa ei aina ole tehdä niin paljon tulevaisuustyötä kuin toivoisin, mutta tähän suuntaan haluaisin viedä palveluitani tulevaisuudessa.”

Vastaukset vastuullisuuskysymyksiin eivät aina ole yksinkertaisia. Jokaista ratkaisua ja ideaa täytyy arvioida ympäristön ja sosiaalisen kestävyyden ohella myös yrityksen kannattavuuden ja liikeidean kannalta. Esimerkiksi kierrätyspuuvilla ei välttämättä sovellu todella pitkäikäisiin luksusvaatteisiin, koska kierrätetyn puuvillan kuitupituus on lyhyempi ja näin ollen tekstiilin laatu heikompi. Vastuullisuus saattaakin joskus tarkoittaa kompromissien tekoa lyhyellä aikavälillä.

Yrittäjyydessä Karoliinaa houkuttelee ennen kaikkea vapaus keskittyä niihin asioihin, jotka kiinnostavat itseään eniten. Kumppanuusverkostojen ansiosta Karoliina voi kuitenkin palvella asiakkaitaan, vaikka ei itse vastaisikaan jokaiseen tarjouspyyntöön.

”Jos ei pysty itse vastaamaan johonkin asiakkaan tarpeeseen, on todella tärkeää, että tietää kumppanin, joka tietää asiasta. Esimerkiksi tekstiilialalla moni asiakas on STJM:n (Suomen Tekstiili ja Muoti ry) jäsen ja sieltä saa todella osaavaa palvelua muun muassa alan sertifikaateista. Kyse on myös rehellisyydestä siitä, että missä oma osaaminen loppuu. Omien verkostojen ja kumppanien ansiosta asiakkaan voi tällöin ohjata parhaalle asiantuntijalle.”

Vastuullisuusyrittäjäksi haaveilevia Karoliina neuvookin luomaan aktiivisesti verkostoja. Kumppanien lisäksi ensimmäiset asiakkaat tulivat yrittäjyyden alkuvaiheessa pääasiassa Karoliinan vanhojen kontaktien kautta. Verkostoitumiseen voi kuitenkin suhtautua rennosti: tärkeää on olla aktiivinen ja kiinnostunut muista. Lisäksi Karoliina kehottaa harrastuneisuuteen sellaisissa asioissa, jotka itseä erityisesti kiinnostavat.

“Ala kehittyy nyt nopeasti. Jos on jostain tietystä vastuullisuuden osa-alueesta kiinnostunut niin kannattaa kerätä siitä lisätietoa. Kannattaa aina mennä sitä kohti, mikä itseä eniten kiinnostaa, koska oma motivaatio ja kiinnostus myös näkyvät ulospäin. Jos on jo jonkin verran osaamista, niin suosittelen yrittäjyyttä, varsinkin jos talous ja psyyke kestävät alkuun epävarmuutta. Yrittäjänä pystyy kuitenkin tekemään töitä niillä reunaehdoilla, kuin haluaa ja keskittyä juuri niihin asioihin, mitkä itseä kiinnostaa. Vastuullisuusalan osaajille on paljon kysyntää nyt ja hommaa riittää varmasti tulevaisuudessa.”

Lue lisää Karoliinan palveluista ja tarinasta Hovi Creativen sivuilta: https://www.hovicreative.com/yhteys-1

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Circular Economy, Sustainability

Why the Circular Economy is not about recycling

You’ve probably heard it before: the Circular Economy is not only about recycling. But what does that actually mean? An important difference between the CE compared to more narrow concepts like closed-loop supply chains or reverse logistics is that the zero-waste vision of CE requires the continuous restoration and regeneration of technical and biological materials. Firstly, restoring technical materials allows things like electronics, batteries, and engines, or anything that cannot be returned to nature, to circulate within the economy as long as humanly possible. For a concrete example, Repack provides reusable packaging materials that customers can mail back to the product provider after delivery. On the other hand, regenerating biological materials allows them to be returned to nature without harming the environment or local communities. For example, Ecovative design provides biodegradable packaging that is made of mushrooms. In isolation, these examples aren’t enough to create a circular economy, as we will need to build ecosystems of companies to enable truly circular material flows. However, companies like Repack and Ecovative are excellent examples of restoration and regeneration.

Another big difference between recycling and the CE is that in a truly circular supply chain, companies not only restore and regenerate their own products but collaborate as part of a business ecosystem to help other companies do so as well. The idea is that one company’s waste may be a useful raw material for another, which goes back to cradle-to-cradle thinking, popularized by Michael Braungart and William McDonough. To enable cradle-to-cradle, we need to holistically redesign entire industries, from raw materials gathering and parts manufacturing to product design, assembly, and distribution. It is a huge undertaking, and we need everyone in society to take part in it.

Below is a very helpful distinction between linear supply chains, closed supply chains, and circular supply chains provided by Farooque et al. (2018). A circular supply chain requires collaboration between different sectors to enable a truly regenerative and restorative system, whereas in a closed-loop supply chain, circular resource flows are contained within the primary supply chain.

Picture source: Farooque, M., Zhang, A., Thürer, M., Qu, T., & Huisingh, D. (2019). Circular supply chain management: A definition and structured literature review. Journal of Cleaner Production, 228, 882–900. https://doi.org/10.1016/j.jclepro.2019.04.303

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Uncategorized

What I’m excited about right now

I have recently been excited about many things. Excitement is generally a welcome feeling but I have found that too much excitement can also be distracting and I would really need to get some stuff done. I also realized that I haven’t been blogging in a looong time, so today I’m killing two birds with one stone by blowing off some of my excitement by writing about the things that I’m excited about.

Right off the bat, I want to mention that I am excited about starting my Ph.D. studies at Aalto University, where I’m currently working as a doctoral researcher in the Finix research project. The Finix project produces scientific research about different sustainability aspects of textile systems in Finland. There are several work packages in the project, and I’m focusing on circular economy management in textile ecosystems.

As part of the Ph.D. studies, I have been attending a course called Perspectives on Organization, which is essentially a reading circle around different streams of Organization and Management Theory. The readings range from classics like Cyert & March’s A Behavioral Theory of the Firm to modern studies about the role of play in the workplace. I’ve been regularly getting my mind blown during the course, and it’s also been quite humbling to learn just how little I actually knew about different management theories.

The course also prompted me to think about science in general. What the heck is science exactly? Are management studies really science? To get started, I dragged myself to Aalto University’s library (yes, an actual library!) and picked up Karl Popper’s Objective Knowledge: An Evolutionary Approach and refreshed my memory on concepts like falsification, induction, deduction, and abduction. However, pretty soon into the book, I realized that if I read Popper too literally, I would have to discount quite large swaths of social sciences as un-scientific, so I had to read something else to maintain my legitimacy as a researcher at least in my own eyes. I then picked up a book called Real Social Science: Applied Phronesis by Bent Flyvbjerg, Todd Landman, and Sanford Schram. The point the authors are making is that social sciences (and by extension management studies which are drawing heavily on social sciences and often use similar approaches) are not about finding the truth in a positivist sense like natural sciences do, but about finding practical knowledge that is relevant to people and helps them solve social problems in a particular context.

Referring to Aristotle’s three types of knowledge, the authors position natural sciences as an aim to find epistemé, i.e. universal truth, or techné, i.e. technical know-how. I was already quite familiar with these concepts thanks to David Ing’s systems thinking lectures that I attended at Aalto in 2017, but it was interesting to revisit them in the context of my own research. If you want to know more about systems thinking or epistemé, techné, and phronesis, I really recommend checking out David’s lectures on YouTube. Here’s one that really knocked my socks off when I was first getting into systems thinking: Rethinking systems thinking.

Currently, I’m also excited about reading philosophy. I’ve been refreshing my memory about continental philosophers like Descartes, and rationalist philosophy in general, but also about empiricism and the works of Hume and Locke. I was also excited to read a little about pragmatism by John Dewey, but haven’t had time to go too deep. There is so much to learn about Philosophy that sometimes it’s hard to know where to start, so I usually jump from one school of thought to another, but at some point I would like to do a more comprehensive review. I have tried reading Bertrand Russel’s History of Western philosophy, but have only scratched the surface so far.

Here’s a really fun podcast about Philosophy that you can listen to also on Spotify: Philosophize This!

Other random stuff that have been blowing my mind:

  • Kurzgesagt: absolutely beautiful animated videos about space, the future, and life in general. Specific topics range from: “What If We Detonated All Nuclear Bombs at Once?” to “How to move the Sun: Stellar engines”
  • Year Million on Disney+. The first two episodes start off lightly by discussing the question: what if we became immortal? Here’s an extract: “Is the end state of our civilization to exist in computers as digital consciousness in perpetuity?” The show reminds me of Yuval Noah Harari’s book Homo Deus, where Harari discusses humanity’s long-standing aims, such as increasing happiness and longevity, and takes them to their logical conclusion. One potential future image is that in the future we are all immortal digital entities living in our personally built nirvana on some server. The question is, what if I can’t pull the plug?
  • Futucast podcast. I ran into this podcast when I was listening to Rahapodi, where they had the Futucast hosts as guests recently. I just listened to the Futucast episode where they interviewed a Finnish futurist, Risto Linturi, who among other things discussed his experience playing the video game Assassin’s Creed Odyssey. He described playing the game felt like being on a real vacation in ancient Greece. Speculation about our future lives in a virtual reality ensued.
  • I have been excited to discuss black holes with my fiancée Emmi who is reading Stephen Hawking’s biography. My previous attempts to discuss black holes or other space-time anomalies with Emmi have usually resulted in her swift escape from the room, so we’re making progress.
  • To further drive home how much of a nerd I am, I want to mention that I’ve been playing Surviving Mars in my free time and I’m happy to report that I have successfully built my first colony on Mars. Still waiting for SpaceX to top that achievement, although they seem to be getting closer
  • Some Books:
    • How to be better at almost everything by Patt Flynn. The book states that it’s better to become a generalist and build skill stacks than to specialize in one area. The book is conceptually related to the book Range: how generalists triumph in a specialized world by David Epstein. Both books essentially argue that integrating skills and synthesizing knowledge is one of the best ways to become useful in today’s complex world. The book by Patt Flynn is more practical (but also discusses philosophy and principles), while David Epstein takes a more scientific look at the topic. Both recommended!
    • Rage by Bob Woodward. Bob Woodward continues his documentation of president Donald Trump. I have no words, just astonishment.

What have you been excited about recently? Please share in the comments. I also appreciate any book recommendations so I can continue building the collection of unfishined books on my night stand.

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Circular Economy, Sustainability

Business Models for a Circular Economy: Sharetribe

Company profile

Name: Sharetribe Oy
Founded: 2011
Founders: Juho Makkonen, Antti Virolainen and Niklas Begley
Industry: Software
Main services: A platform for creating online marketplaces
Sustainability: Sharetribe contributes to the development of a sharing economy by helping its customers build peer-to-peer online marketplaces.

Company history

If you have always wanted to start your own online business, but have lacked the technical skills required to build a website, then Sharetribe is for you! Sharetribe is an online platform that has streamlined the creation of peer-to-peer marketplaces. It allows anyone to build a customized website that can be used as a marketplace or as a platform for peer-to-peer sharing – no programming skills needed.

Sharetribe is simple to use and it only takes a few minutes to get your site running. You can then customize everything from the design and layout of the website to the transaction fees you collect. Because Sharetribe has made the technical side of developing a marketplace much easier, an entrepreneur can now focus on the business development side of things, such as building the customer base and marketing the company’s website.

Sharetribe Oy was founded in 2011, but the company has been in development since 2008 when two of the three co-founders, Juho Makkonen (CEO) and Antti Virolainen (COO) were working on a research project in Aalto University.

According to the CEO of Sharetribe, Juho Makkonen, he and Virolainen were originally developing an online sharing platform for students at Aalto University as part of their diploma work. Students using the site were able to share and rent items such as power drills and course books. At first, there were no business ambitions involved in the project, but after graduating in 2010 the two founders started to consider building a company around the idea.

“We saw the business potential in the concept. At the same time, we both wanted to find a job where we could have a positive impact on society. Around that time people started talking about sharing economy, and so we finally decided to start the company in 2011”, says Makkonen.

After exploring different concepts and doing a shift in strategy, Sharetribe found a working business model and won the Peloton Summer Camp competition in 2013. By the end of 2015 the company had over 500 customers in more than 40 countries, with the customer base having grown 400% in the past 12 months. Makkonen and his team have grand visions for the company:

“We want to do the same to online marketplaces what WordPress did to the publishing industry. WordPress opened up its code in 2003 and today one in four websites around the world is run on WordPress. What we want to do is to make founding a marketplace so cheap and simple that anyone can do it.”

The vision behind Sharetribe is highly connected with an ongoing shift in consumer values from ownership to access, also known as sharing economy. Put simply, sharing economy means that people are more willing to borrow, share and rent resources such as bags, books, toys or bikes, instead of owning them. By helping people create marketplaces more easily and cheaply, Sharetribe contributes to this development.

It’s important to note that the sharing economy doesn’t always mean shared profits. While companies like Airbnb, Uber and TaskRabbit have helped democratize commerce, these marketplaces are still owned by a selected few individuals. Makkonen wants to change this.

“I think having too centralized ownership is a major problem in the markets. Companies like Uber and Airbnb are all venture capital-backed big players who get all the real profits. What I want to see is more local players being able to develop their own marketplaces where the profits stay with the local owners.”

Combine Sharetribe with 3D printing, the maker movement and crowdfunding sites such as Indiegogo and Kickstarter, and perhaps we’ll soon see the rise of marketplaces where financial assets, production capital, and distribution networks are in the hands of the many instead of the chosen few.

Business model: Sharing platform

Value proposition: We make it easy and affordable for sharing economy entrepreneurs around the world to create and run their own online marketplace.
Customers: Sharing economy and lifestyle entrepreneurs
Revenue generation logic:  Customers pay a monthly fee ranging between $39 – $299. Fee depends on the number of members participating in the marketplace.

According to Accenture’s business model framework, Sharetribe has a sharing platform business model. A sharing platform is either an online or physical platform that facilitates the sharing of resources and decreases the overcapacity of assets. In Sharetribe’s case, the company helps entrepreneurs develop online sharing platforms, i.e. peer-to-peer marketplaces.

 

Accenture’s 5 business models for circular economy. Source: Accenture, Circular Advantage.

Sharetribe is an interesting case because the company has the potential for building a highly scalable business model. According to Makkonen, the team is working hard to develop the core service as solid as possible, with the aim that customers can get excellent service without having to ever contact customer support. To make this happen the team is also planning on expanding the company’s blog so that customers can find as much content and support as they need.

“We want to find more scalable ways of communicating with our customers. Our marketing strategy is based on providing content and information about the same problems our core service aims to solve. We have also had some discussions with potential partners about providing business coaching to our customers.”

Furthermore, Makkonen shares a vision of a complete partner ecosystem.

“We have been thinking about developing an ecosystem of services, where our partners could build on the platform we have developed. We could have our own app store similar to Shopify.”

As with any startup, it’s too soon to tell whether Sharetribe will scale up to become a key player in the markets. However, having a scalable and automated core service that can be customized with partner applications can translate into high profit and growth potential.

In the end, though, having a startup is not all about making a lot of money or even saving the world for Makkonen. Sharetribe team – founders included – works no more than 40 hours a week, and everyone takes normal annual vacations.

“I and Antti have put a lot of thought into why we’re doing this thing. One important reason was contributing to society, but we also wanted to have a balanced life with the freedom to live the way we find best. I think working around the clock and sacrificing your friends and family defeats the purpose of working in your own company.”

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Circular Economy, Sustainability

Business Models for a Circular Economy: Pure Waste Textiles

Name: Pure Waste Textiles
Founded: 2013
Founders: Hannes Bengs, Anders Bengs, Lauri Köngäs-Eskandari, Jukka Pesola and Maela Mandelli
Industry: Sustainable fabrics and clothing
Main products: Recycled fabrics and clothes
Sustainability: Pure Waste Textiles provides recycled fabrics and clothes to consumers, other clothing labels, and retailers

Company history

One of the most important issues related to the circular economy is making sure that we use existing resources as efficiently as possible. In fact, waste should be completely designed out of our products and production systems. This is where a company like Pure Waste Textiles can help.

Pure Waste Textiles is a clothing company that produces 100% recycled fabrics and clothes. This is how Pure Waste Textiles works: the company buys leftover materials and fabrics that would normally go to waste from textile manufacturers, sorts the waste by color, tears the fabric apart into raw cotton, spins the cotton into yarns and finally turn the yarns into usable textiles. The end product is a 100% recycled and high quality textile that would have normally been disposed as waste. Furthermore, because the company sorts the waste by color, no extra dyeing is required during the process.

Pure Waste Textiles was founded after the owners of the Finnish ecological clothing label, Costo, began searching the markets for cotton that would be 100% recycled. The Costo label had previously been using surplus materials from other clothing manufacturers in its products, but in 2010 the company wanted to take things up a notch by creating a clothing line out of completely recycled fabrics. Using recycled fabrics would not only be a more ethical choice, but it would also make more business sense, as it would allow the company to provide a steadier stream of supply for its retailer clients. However, according to one of the founders, Hannes Bengs, the task of finding 100% recycled fabrics proved difficult:

“Back then we started thinking about using completely recycled textiles and so we began looking for fabrics that would be 100% recycled. To our surprise, we couldn’t find any suppliers for recycled fabrics. We then got excited and realized that we could start supplying recycled textiles ourselves.”

The company set to work straight away and began creating prototypes and test batches, which finally lead to the founding of Pure Waste Textiles in 2013. Potential suppliers were found from China and India, and after long negotiations, the company was able to form partnerships with local manufacturers.

“We had Jukka Pesola working with us, who had 15 years of experience from doing trade in Asia. He knew about the local manufacturers, factories and recycling centers. The technology for producing recycled textiles was actually in place, it just hadn’t been used for creating 100% recycled fabrics before”, says Bengs.

Although the company had the benefit of using existing contacts, finding a partner wasn’t easy. The company needed to prove that producing completely recycled textiles would actually work. Bengs elaborates:

“The biggest challenge was that no one wanted to produce anything for us at the beginning. They were mostly afraid that using recycled fabrics would break their machines. After wrestling with this issue for some time, we were able to produce a few working test batches and then things finally took off.”

Pure Waste Textiles wants to create a positive change in the clothing industry by making ecologically produced clothes and textiles more available to consumers. According to Bengs, the biggest sustainability issues in the clothing industry are related to quality and time.

“If a company is selling a t-shirt with a 5 or 10 euro price tag, it is cutting costs in either quality, materials or labor. It just isn’t possible to produce a quality shirt for 5 euros. Another major issue is the existence of fast fashion. Having a product go out of fashion in six months is simply not sustainable.”

The main problem behind both issues is that the externalities, such as carbon emissions, destruction of habitat, or social issues that are caused by cheap manufacturing are not paid by the companies themselves, but by local communities, national governments, or by future generations. If the full cost of producing a t-shirt or a pair of jeans was paid by the companies, we would most likely have very different clothes prices.

In the future, Pure Waste Textiles wants to form partnerships with big clothing manufacturers and labels, where Pure Waste would provide the fabrics and the manufacturer would do the rest. The company’s vision is that when people think of recycled, high quality, and ethical clothing, they will think of Pure Waste Textiles, similar to how people think of Gore-Tex when it comes to dry and water-proof clothes.

Today Pure Waste Textiles already has competition in the recycled fabrics markets. For example, Eco-fi, a US company, sells polyester fiber made from post-consumer plastic bottles, while Brentano, also from the US, offers post-consumer recycled polyester fabrics.

Business Model: Recovery and Recycling

Value proposition: We make 100% recycled, premium quality, and sustainably produced yarns and fabrics.
Main customers: Clothing brands and manufacturers.
Revenue generation logic: The business model is based on selling fabrics and yarns to clothing manufacturers and brands. However, in 2015 the company’s main cash flow still came from selling t-shirts to companies and individual consumers.

 

According to Accenture’s business model framework, Pure Waste Textiles has a Recovery and Recycling business model. According to Accenture (2014), the model enables companies to eliminate material leakage and is a good fit for companies or industries that produce large volumes of by-product. In this case, Pure Waste Textiles helps clothing manufacturers to eliminate waste from the clothing manufacturing process by turning by-product into usable fabrics.

Accenture’s (2014) 5 Business Models for a Circular Economy.

While the manufacturing processes and technologies used to create fabrics might be complex and sophisticated, the business model of Pure Waste Textiles is relatively simple. The company buys by-products from manufacturers, turns them into usable fabrics or clothes and sells them forward.

What’s particularly interesting about Pure Waste Textiles and its business model is the scale of the unused resources that the company is trying to tap into. According to Pure Waste Textiles, 10-15% of the produce from clothing manufacturing is usually wasted, which only a few companies have so far been able to take advantage of. If that 10-15% could be turned into a profitable business, we could see a great rise in material use efficiency in the clothing industry.

The Pure Waste Textiles manufacturing process.

Moreover, while reducing the waste and by-products from industrial processes is an important issue in itself, there are other even bigger opportunities for improvement to explore. What if we were able to recycle all clothes – not just the pre-consumer fabrics? What industries, what companies and how many circular economy jobs could we see emerge when we start exploring such opportunities? Pioneering companies like Pure Waste Textiles often pave the way to finding other places where innovative business models and technologies could be used to create circular economy businesses.

And most importantly, while advanced technologies will be needed in the future to create a circular economy, Pure Waste was able to rely on existing technologies in creating its circular business model. Sometimes it’s not better technology that we need, but better purposes for using our technologies.

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Circular Economy, Sustainability

Business Models for a Circular Economy: PiggyBaggy

Company profile

Name: Coreorient Oy / PiggyBaggy (beta)
Founded: 2011
Founders: Harri Paloheimo and Heikki Waris
Industry: Multiple industries / ICT-enabled services
Main services: PiggyBaggy crowdsourced ride-sharing for goods; Smart service system development and consulting
Sustainability: PiggyBaggy lowers emissions and resource consumption by providing access to already existing mobility, similar to car sharing

Company history

Have you ever needed a particular tool to do some small task, such as drilling a hole in a wall or tightening a loose screw in a bike, but didn’t have that tool available? And then had to either spend a lot of money to buy that tool or a lot of time finding someone who could lend it to you? Or have you ever spent half a day trying to get some mundane task done, such as delivering a book to a library or returning a broken MP3 player back to the store?

I’m sure you have. And I bet you have some tool that you’ve only used a few times in your life, such as a power drill, lying around in your basement.

What if instead of owning expensive equipment, you could rent or borrow the tool you need, or pay someone else in your neighborhood to drill the hole for you? And how about if you didn’t always have to go to the library to borrow books, but could instead pay someone else to deliver the book, or use a library access point near your house?

What if you could live in a world with less stuff to take care of, less hassle over mundane things, and more time to do the things you really care for?

Moreover, what if in this world you could get things done by using fewer resources, less or no gasoline, and less energy. You would pay for services, instead of goods, and would have access to functionality and results, instead of having ownership of the damned power drill.

And even if you do want to own your power drill, the rest of it sounds pretty good, right?

A Finnish company called Coreorient, is trying to build that world.

Founded in 2011 by several ex-Nokia experts, Coreorient is a company that has been involved in developing services and technologies that help people get everyday things done more efficiently and using less time.

The company’s flagship service, PiggyBaggy, is a crowdsourced ride-sharing service for goods. The idea of PiggyBaggy is simple: let’s say you need to deliver a broken laptop to an electronics store for a fix-up. Instead of going yourself, you can use PiggBaggy to get someone in the PiggyBaggy community to deliver the laptop for you in return for a small payment. For example, someone might be commuting past your house and the electronics store and could, therefore, take your laptop on her way to work, giving you more time to do other things.

According to the CEO of Coreorient, Harri Paloheimo, the idea for crowdsourcing goods-delivery came to him when he was returning a broken microwave back to the store. As Paloheimo didn’t own a car, the journey to return the microwave involved taking several buses and a subway.

“When I spent half a day returning a broken microwave back to store, I remember thinking at one point that this doesn’t make any sense and that there has to be a more efficient way to get this done.”

Paloheimo began tinkering with an idea of a crowdsourced ride-sharing service for goods and even tried to get Nokia to do a collaboration with several existing ride-sharing companies. In the end, however, Paloheimo didn’t get the required support from Nokia headquarters and finally, he left Nokia in 2012 to lead Coreorient. The company had already been founded on paper in 2011 by his college, Heikki Waris. Although the men were taking a leap from a big corporation to run a small startup, being an entrepreneur felt oddly familiar to Paloheimo:

“I had been acting as an intrapreneur at Nokia for years before starting my own business. I had imagined that things would work in a more rational way outside big corporations, but I soon realized that the same pitching theater and powerpoint circus that I was used to continuing in the real world.”

Moreover, power points and pitching weren’t the only things familiar to Paloheimo. He was also very used to facing failure:

“They say that you can’t have success before going bankrupt a few times. Well, I hadn’t gone bankrupt, but I had experienced some big failures in Nokia. For example, having to disband a team you’ve lead feels a lot like going bankrupt to me.”

After initial difficulties, PiggyBaggy began gaining momentum and by the end of 2015 the service had over 1500 users and between 700-800 items delivered.

Aside from PiggyBaggy, Coreorient is also constantly experimenting with new concepts and service development and wants to take part in developing a Sharing Economy. However, Paloheimo makes clear that the company wants to avoid becoming similar to Uber:

“We want to frame ourselves as a second wave Sharing Economy startup. The first wave consisted of companies like Uber, which maximized value solely for their end-users. We, however, think about the Sharing Economy and our business from a broader perspective. We want to maximize value for all stakeholders and interest groups involved in our business, not just for ourselves or our customers.”

Paloheimo emphasizes that Coreorient wants to take part in developing business models and win-win-win structures that maximize value for both consumers, the company, and the society at large. As an example of this, Paloheimo talks about Coreorient’s collaboration with the city of Tampere:

“We got funding from the European Social Fund to find ways to activate youngsters that are in danger of becoming marginalized. We are now trying to find ways to use crowdsourcing as a medium for involving young people in society and to help them find a job. Although we use crowdsourcing as our main tool, it doesn’t necessarily involve PiggyBaggy or ride-sharing”, says Paloheimo.

According to Paloheimo, Coreorient has been involved in many similar projects all around Finland. The different experiments have also enabled Coreorient to test different assumptions about the markets and their customers, which helps the company to refine its ideas and services. Armed with this experience, Coreorient is now looking outside Finland to Europe and beyond.

“The experiments we’ve conducted in Lahti, Jyväskylä, Helsinki, and Tampere have confirmed us that our systems and main concepts work. However, now the time for experiments is over and we need to make decisions about where and with whom we want to go on with this. Finland is getting small for us, and we’re potentially looking to expand to Denmark, or maybe India.”

At the moment Coreorient is looking for partners and collaborators to make this expansion happen, while also continuing to develop their core service concepts.

PiggyBaggy Business Model: Sharing Platform

Value proposition:  “Ride-sharing for goods. Convenient. Sustainable. Secure.”
Main customers: 1) People who need help in getting items delivered. 2) Businesses that need low-cost options for purchase delivery.
Revenue generation logic: Two options: 1) Subvention-based: online businesses will pay PiggyBaggy for using it in purchase delivery, 2) Transaction-based: end customers of second-hand online marketplaces will pay PiggyBaggy for using it in purchase delivery.

According to Accenture’s business model framework, PiggyBaggy has a sharing platform business model. A sharing platform is either an online or physical platform that facilitates the sharing of resources and decreases the overcapacity of assets. In PiggyBaggy’s case, excess capacity is people’s time and mobility. PiggyBaggy enables individuals and businesses to tap into the existing mobility in order to get items delivered.

Accenture’s (2014) 5 Business Models for a Circular Economy.

PiggyBaggy is an excellent example of the power of IT and the internet to create new ways of organizing human activity. What PiggyBaggy actually does is that it uses the internet to provide access for tapping into excess mobility and time – something that would have been near impossible to do 20 or 30 years ago. By creating the PiggyBaggy platform, Coreorient has essentially created a new marketplace where the supply and demand for mobility and time can meet.

For example, I might need a book delivered to the library, but I don’t have enough time or I’m otherwise unable to go to the library myself (lack of time and mobility). However, there are hundreds of people going past my house and the library every day, many of whom could pick up my book and return it without making a major detour (overcapacity of time and mobility). PiggyBaggy allows me to delegate my tasks to these people, therefore putting the overcapacity of time and mobility into good use.

According to Harri Paloheimo, Coreorient has at least two potential revenue models for PiggyBaggy. One is based on a subvention model, where PiggyBaggy would essentially enable businesses that do home delivery to lower their costs by using the PiggyBaggy community to deliver customer purchases. Paloheimo elaborates:

“In EU and in Finland it costs approximately 15 euros to deliver a product to a customer. At the same time customers are on average only willing to pay 5 euros for the delivery. This means that businesses lose 10 euros on average per packet delivered to consumers. Our idea is that we could lower these costs and get paid for doing so.”

The other option would be to use a transaction fee-based revenue model, where the customers would be individuals shopping at second-hand marketplaces. Usually, in second-hand shops the end-users arrange the delivery of items themselves, but by using PiggyBaggy they could use crowdsourcing to get their items delivered. PiggyBaggy would charge the transporter around 15-20 percent of the fee he or she received from the customer.

In both revenue models, PiggyBaggy lowers the costs of transportation while also reducing emissions and pollutions from cars by decreasing the overall number of car trips.

But PiggyBaggy is not the only service that Coreorient has been developing. The company has been experimenting with a concept called smart containers. A smart container is essentially a shipping container that is used as an access point for different services and resources. For example, smart containers in Kalasatama, Helsinki have been equipped with library services, organic food services, recycling services, and electric car charge points. Furthermore, the containers can be used as PiggyBaggy delivery points.

How are PiggyBaggy and the Smart Containers connected? Paloheimo shares a vision of a global network of community-run smart service points, connected by crowdsourced goods delivery. According to Paloheimo, this kind of network of services and crowdsourced transportation represents a viable alternative for today’s centralized mass manufacturing and transportation.

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Sustainability

Wicked opportunities in sustainability

While our world has become more dynamic and more complex, so have our problems. Wicked problems, such as climate change, terrorism, social inequality and destruction of natural habitat are extraordinarily difficult to deal with because they are almost impossible to define accurately. However, if we change our perspectives and reframe the issue in a new way we can overcome the wickedness of the challenge.

Wicked problems

“[Wicked problems are a] class of social system problems which are ill-formulated, where the information is confusing, where there are many clients and decision makers with conflicting values, and where the ramifications in the whole system are thoroughly confusing”- Horst Rittel

The definition of wicked problems is as complex as the problems themselves. Wicked problems have been a topic of discussion since the 1970s when Horst Rittel and Melvin Webber published their article, Dilemmas in a General Theory of Planning. The authors explained how wicked problems differ from engineering problems in that they are almost impossible to define.

To illustrate, let’s imagine that you have a rising drug problem in your city. The root problem appears to be a new gang that is importing large amounts of drugs to the city from overseas. After identifying the gang leaders, the city police finally apprehends the gang leadership in a large raid and confiscates all the drugs. For a while it seems that the amount of drug offences is decreasing. Surely the problem has been solved, right?

In reality the opposite is the case. In the following months a violent gang war ensues and the amount of people detained for drug abuse is actually increasing! The reason? By eliminating the dominant gang, the police created instability in the hierarchy between other rival gangs in the city and in the drug markets. This instability was then corrected by a violent power struggle between the gangs that remained.

The police had therefore introduced only a temporary solution to the drug problem. In fact, the real problem is not the use of drugs, which is only a symptom of the underlying cause. The use of drugs and other criminal activity were the result of a variety of other societal problems, such as poverty, racial issues and bad city planning. These underlying, systemic issues were not addressed by getting rid of one gang, which is why the drug problem only got worse.

Here are some other examples of wicked problems:

  • Climate change
  • Global terrorism
  • Nation-wide obesity
  • Acidification of the oceans
  • Deteriorating biodiversity
  • Poverty

All of the above problems consist of several interconnected parts. For example, climate change cannot be reduced to one problem definition with simple cause-effect relationships, because the climate itself is very complex and hard to understand. The climate is not a singular thing, like a mountain is, but the cumulative effect of all the streams of air, water and heat in our planet.

Understanding the nature of wicked problems is absolutely necessary for today’s problem solvers and decision makers because most problems worth thinking about are essentially wicked. It is easy to become paralyzed after realizing how challenging it is to solve wicked problems. However, I believe that by reframing the issue we can unleash our creative thinking and turn the problems into an opportunity

Wicked opportunities

What if I told you that climate change, inequality and other similar issues are only problems if we choose to define them so? In fact, I like to think of wicked problems as signals telling us that change is necessary – that we need to start doing something fundamentally different from what we’re doing now. It means that we need to design new and better economic, social, governmental and physical systems than the ones that are now in place. Therefore, our biggest challenge is in fact overcoming our unwillingness to change.

Change is sometimes very difficult, but whenever there’s fundamental change involved, there are also great opportunities. Furthermore, we humans are experts in change! Just think of how different our world is from a hundred years ago – or fifty, or even twenty years ago. The automobile, the airplane and the advent of ICT have all changed our lives and the society so fundamentally that our forefathers would think they’re in a different planet if they saw our world today. So there’s nothing new to systemic change – it is already happening all around us.

Therefore, what we need to do is reframe wicked problems as opportunities. They are opportunities for creating new value, new business and new, more sustainable ways of living. I am happy and inspired to see many companies, such as Demos Effect, Plantagon, MBA Polymers, Ecovative Design, Piggybaggy, RePack and thousands others, adopting this attitude.

There’s a lot to do, so let’s not waste time trying to solve problems because it leads nowhere. Let’s instead choose to change our perspective and begin creating the world we want to live in.

Here are some suggestions how you can reframe wicked problems:

  • If you or your organization are faced with a difficult challenge, ask yourself whether it’s really an opportunity disguised as a problem.
  • When dealing with a wicked problem in your own life, instead of trying to solve the problem, try to think of ways you can re-design your life.
  • If you hear someone talking about a difficult challenge, try to identify the social systems that are involved in the issue. Then try to think of how we could go around the problem by designing the systems better.

References:

Rittel, H. & Webber, M. (1073). Dilemmas in a general theory of planning. Policy Sciences. vol. 4. pp. 155-169.

Buchanan, R. (1992). Wicked problems in design thinking. Design Issues, vol. 8. no. 2. pp. 5-21.

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Systems Thinking examples

What can we learn from Finnish anarchists?

The clashes between anarchists and the police during the Finnish independence day have recently been a hot topic of discussion in Finland. A group of anarchists had started a riot on the evening of independence day, which resulted in destroyed public and private property. Destroying small companies’ property has especially been the subject of public outrage. But is there something we can learn from the anarchists?

It is very difficult to understand what the anarchists tried to achieve by breaking other people’s property. One way to look at it is that by breaking stuff the anarchists try to draw attention to issues in our society. What the anarchists probably don’t understand is that the violent actions themselves easily become the center of attention instead of the anarchists’ actual message.

However, shunning the anarchists helps no one either. Pointing fingers and demonizing the rioters only feeds our own egos and makes us feel superior. The reason we make the anarchists the bad guys is because it’s the usual knee-jerk reaction to violence and because it provides a simple cause-effect explanation removing us from any responsibility.

But is there an alternative? If the anarchists aren’t at fault, who is? The reality is that finding fault is irrelevant to begin with. Trying to find someone to blame begins with the false premise that there is in fact someone or something that can be identified as the single cause for our problems. Thus, the alternative to blaming the perpetrators is looking at the issue from a totally different perspective.

Systems thinking

Let me begin by quickly defining the opposite of systems thinking, which I will in this case call linear thinking. Using linear thinking we would conclude that because the anarchists were the ones wrecking places, the problem is in the anarchists. It provides a simple analysis: anarchists break places -> anarchists are the problem. Cause and effect.

Systems thinking would instead begin by trying to view the phenomenon as part of the whole society. According to systems thinking, in order to understand a single event it has to be observed in the context of the larger whole it is part of. In this case, the anarchists’ actions would be explained in the context of the underlying social problems that influence the anarchists’ behavior.

By understanding systems thinking we would realize that the anarchists’ actions do not represent the failing of an individual, but are the end result of some systemic structures in our society. The real issues leading to the events on independence day might have been developing for years, if not decades. Thus, issuing blame on individuals is useless, if not dangerous because it prevents us from understanding the real causes.

I am not saying that individuals shouldn’t be held accountable for their actions. Free will still exists and individuals need to take responsibility for their behavior.

What I am saying is that we need to start talking about the real issues rather than pointing fingers.

Creative Commons Skate and riots by Sergio is licensed under CC BY 2.0
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systems thinking

Events, behavior, structure

Why is it sometimes so incredibly difficult to change one’s behavior? Why do some events and outcomes seem to repeat themselves over and over regardless of our best attempts to change them? And why do some countries and areas have more crime, poverty and other societal issues than others? If you have read my older posts, you might agree with me that crime and poverty are not first and foremost the failing of an individual, but the results of system level problems. In this blog post I want to introduce an effective systems thinking approach for identifying the root causes of systemic problems.

The tip of the iceberg

We humans tend to become pre-occupied with reacting to events that require our immediate attention. I’m guessing this is partly because of our ancestors’ survival instincts. Our primitive ancestors were forced to react immediately – to fight or flight – to threats in their environment or perish. Being armed with the same instincts, our emotions guide us to quickly react to arising problems. This is a necessary skill if you want to survive in the nature, but the bias towards the immediate sometimes prevents us from understanding the real reasons behind certain problems. The problem is that our instincts are not always so good at recognizing which problems are truly important and which ones are merely urgent. This hinders our ability to see the bigger picture and to recognize slowly evolving changes affecting us.

With increased complexity, the issues we deal with as individuals and as a society require much deeper understanding than the problems our ancestors had to face. Quick fixes never work because the underlying root causes are left untreated. To make matters worse, our ancestors’ survival instincts cause us to over-react emotionally even when the problem at hand would require us to keep our cool. News and other media amplify this problem by giving emphasis on bad news. The media also tends to focus on reporting one-time events, celebrity news and entertainment, which distorts people’s world view and hides the real issues.

The over-emphasis on one-time events is dangerous. It prevents us from understanding the real problems behind issues and creates a quick-fix culture. If the economy is down, we blame the government. When there is disease, we treat the symptoms. Where there is poverty, we give money to the poor or blame the individual. What we need to understand is that events and the perceived state of affairs are the end results of complex processes instead of simple cause-effect relationships.  They are only the tip of an iceberg.

What is hiding under water?

How can we re-orient ourselves to understand the whole iceberg? Peter Senge, a well-known organizational learning expert and a systems thinker, tackles the issue in his book The Fifth Discipline. According to Senge, there are always multiple levels of explanation to a complex situation. Understanding the different levels of complexity can help us find the root causes of problems and prevents us from jumping into conclusions about a situation. Take a look:

Events

I recently read a news piece about a Finnish nickel mine company, situated in my home region Kainuu. The article stated that the company had failed the expectations of its shareholders and the people in the region. The article also described comments from the shareholders, many of whom were small investors and had invested large portions of their savings on the company’s stock. Most of the shareholders interviewed in the article complained that the company and the CEO had failed them, with some stating that the company had outright fooled them out of their money.

The shareholder’s view represented in the article is a demonstration of an event-level explanation. It provides a simple cause-effect analysis of the situation where the mining company and its leadership are seen as the cause for the shareholders’ problems. Losing money is seen to be the outcome of the company’s bad managing. It is extremely tempting to find simple causes behind problems because it protects our own ego and presents the path of least resistance. Unfortunately event explanations are usually based on quickly made conclusions and generalizations that tell more about our own prejudices and fears than about reality.

Patterns of behavior

The second level of explanation already goes much deeper than event explanations. Rather than fixating on single events, we can attempt to find patterns of behavior and long-term trends that affect our lives and our society. In the nickel mine example we might find that small investors are often financially uneducated, which is why they are more easily tempted to place their savings into single investments. The problem definition is now fundamentally different from the previous one. Instead of perceiving the company’s management as the root cause, we would accept that companies sometimes do fail and conclude that the real problem is our inability to take this into account when investing.

Here’s another example: suppose the occurrences of type two diabetes in a nation are rising. A reactionary response, based on an event level explanation would be to prescribe medicine for the disease. Understanding patterns of behavior would, however, enable us to see that obesity is the real problem, which would prompt a very different solution. Instead of treating the symptom, i.e. diabetes, we would try to influence people’s behavior in some way to reduce obesity.

Systemic structure

The third level of explanation is concerned with systemic structures. It essentially means identifying and understanding the structures that push us to behave in a certain way. Structures that affect our behavior include but are not restricted to:

  • physical structures, e.g. transportation infrastructure, architecture
  • cultural & social structures, e.g. social norms, social classes
  • legal & institutional structures, e.g. laws, organizations, regimes
  • economic structures, e.g. financial systems

All the above structures affect our behavior in many ways and are an extremely important to understand. A complex problem must be addressed in the context of the larger whole it is a part of. In the  nickel mine case we could try to identify structures in the financial and cultural systems that drive people to take too much risk. Perhaps there are structures in place that cause us to look for short-term gain or to be impatient with our investments? We could also ask questions about our current economic system: are there some key areas in our system that drive harmful behavior in publicly owned companies? Are we using the right metrics to measure companies’ performance and the economic system as a whole? These kinds of questions help us look at the bigger picture and identify the deeper  causes of problems.

Mental models

The final and the most important level of explanation deals with our mental models. Our human systems are ultimately a reflection our own thinking and the prevailing mental models in our society. Systemic structures are also an outcome – an artefact of sorts – of human thinking. Observing different cultures reveals differences in mental models. Time, for example is viewed very differently in different parts of the world, which has a major impact on the way people behave and plan their lives.

Because mental models influence everything we do it is the ultimate leverage when pursuing change. Therefore, instead of over-emphasizing the significance of one time events, we should observe our thinking habits and see how they affect systemic structures and patterns of behavior.

How to use the different levels of explanation?

Here are some suggestions for using Senge’s framework:

  • Next time you watch news, think about the behavior and the structures that might have caused the events being discussed.
  • If you find yourself blaming someone or something for a problem in your life, try to think of ways you could have prevented it with your own behavior. What could have been done differently? Try to find a structure that might have caused any potential un-beneficial behavior.
  • Observe your own thinking: can you identify strong mental models or mind-sets? If you can identify your mental models, try questioning them. Are they true? Why or why not? You can also try to think of ways your mental models are affecting your behavior.
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